Electronic Arts 2006 Annual Report Download - page 124

‚ An increase of $19 million in external development expenses due to the development of new
products with our co-publishing partners and development costs for Renderware and mobile
platforms.
‚ An increase of $18 million in facilities-related expenses to help support the growth of our research
and development functions worldwide.
Acquired In-process Technology
Acquired in-process technology charges for Ñscal years 2005 and 2004 were as follows (in millions):
March 31, % of Net March 31, % of Net
2005 Revenue 2004 Revenue $ Change % Change
$13 1% $Ì Ì $13 N/M
The acquired in process technology was the result of acquiring all outstanding shares of Criterion and an
additional 44 percent of Digital Illusions C.E. (""DICE'') during the year ended March 31, 2005. Acquired
in-process technology includes the value of products in the development stage that are not considered to
have reached technological feasibility or have alternative future use. Accordingly, the acquired in process
technology was expensed in our Consolidated Statement of Operations upon consummation of these
acquisitions. See Note 4 of the Notes to Consolidated Financial Statements for additional information.
Interest and Other Income, Net
Interest and other income, net, for Ñscal years 2005 and 2004 was as follows (in millions):
March 31, % of Net March 31, % of Net
2005 Revenue 2004 Revenue $ Change % Change
$56 2% $21 1% $35 167%
Interest and other income, net, in Ñscal 2005 increased from Ñscal 2004 primarily due to:
‚ An increase of $15 million in interest income, net, as a result of higher yields on higher average
cash, cash equivalents and short-term investments balances in Ñscal 2005.
‚ An increase of $10 million due to gains on investments.
‚ An increase of $8 million due to a net gain from our foreign currency activities.
Income Taxes
Income taxes for Ñscal years 2005 and 2004 were as follows (in millions):
March 31, EÅective March 31, EÅective
2005 Tax Rate 2004 Tax Rate % Change
$221 30.5% $220 27.5% Ì
Our eÅective income tax rate reÖects tax beneÑts derived from signiÑcant operations outside the U.S.,
which are generally taxed at rates lower than the U.S. statutory rate of 35 percent. The eÅective income
tax rate was 30.5 percent for Ñscal 2005 and 27.5 percent for Ñscal 2004. Our increased eÅective income
tax rate in Ñscal 2005 primarily reÖects the fact that we resolved certain tax-related matters with the
Internal Revenue Service during Ñscal 2004, which lowered our Ñscal 2004 income tax expense by
approximately $20 million and resulted in a 2.5 percent rate reduction. Additionally, adjustments related to
certain tax audit developments, a change in valuation allowance, and non-deductible acquisition-related
costs, partially oÅset by the geographic mix of taxable income subject to lower tax rates for Ñscal 2005,
increased our eÅective income tax rate in Ñscal 2005.
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